You have a take a view (of the interest rate direction). Personally (I have my reasons), I think the rates will be maintained in the short term (1-2 years) with the possibility of it moving slightly higher in the medium term. Therefore, I would choose a loan that is compatible with my view.

With this in mind, there are currently several types of loans to choose from, those that gives you a lower fixed interest (for example, Citibank 5.70% for first 3 years, 5.99% rest) or those that are flexi (BLR-1.5%/1.75%) such as Public Bank or OCBC. Taking Citibank and OCBC for comparison, you can see that for the first 3 years, Citi will charge you 5.70% while OCBC will charge 5.25% (that is 45 basis point differential on the full principal sum which translates to some serious savings). (These are zero entry cost packages. Rates can be further negotiated)

On the medium term (again this will depend on your view on how interest rates will move), assuming interest rates move upwards by 1% (BLR will then be 7.75%). Citi will charge you 5.99% while the OCBC loan will be 6% (7.75% - 1.75%). In this scenario, Citi will be marginally cheaper but you would have saved for the first 3 years where the OCBC loan gave you better rates (where the principal sum was larger).

Obviously, should the BLR move even higher, the OCBC loan will cost you more but you will also enjoy better rates should BLR remain stable (6.75% - 1.75% = 5%).

dude, the market rate is determined by many factors, and it's unlikely that you get below 5.50% fixed at current market conditions. So unless the money market is so flush with liquidity, banks become super efficient (hence lowering their ECOF) and competition for business between banks (and/or insurance companies for housing loans) intensifies; rates are unlikely to become lower than present. If you want lower rates (4% and below) go work for a bank to enjoy their staff rates (4% and below).

Although I've not personally seen the construction of such terms (rates to increase if BLR increases to a certain level) they are indeed very possible to protect the bank from losses. Should KLIBOR be raised significantly, interest rates (whether fixed or not) would have to go up to avoid losses for the bank. Banking is a business, not charity. Now you know how some banks can have billions in profit.